Forgiving Student Loan Debt - A Good Or Bad Idea?

This idea has been floating around the internet for a couple of months. My thoughts? One of the worst ideas ever. Although I have a pile of student loans myself, and I would benefit greatly from a policy like this, I can see how inane this idea actually is. Here is Justin Wolfers on why this idea sucks.



Addendum: I found this piece from the Economist discussing student loan forgiveness.

Many of the anti-Wall Street protesters push the idea of blanket debt forgiveness as a solution. But that is the wrong answer. Higher education is not a guarantee of employment, but it improves the odds immensely. Unemployment rates among university graduates stood at 4.4% on average across OECD countries in 2009. People who did not complete secondary school faced unemployment rates of 11.5%. Much of the debt that students are taking on is provided or guaranteed by the government. Imposing write-offs on all taxpayers to benefit those with the best job prospects is unfair; and ripping up contracts between borrowers and private lenders is usually a bad idea.

I could not agree more. The article goes on to discuss why student loan laws need to be changed in order to ease the burden of student loans in times of economic crisis.

It's All Relative - The 2009 Recovery

Here is an informative graphic from the WSJ comparing the recent recovery to all other recoveries since WWII. (Click the picture to enlarge.)

There are several striking things about the recovery that started in June 2009. It is a jobless recovery, bank lending is abnormally low, home prices have tanked (and are continuing to decline on average), and disposable personal income is recovering more slowly than in all previous post-WWII recoveries. I know the graphic is from several months ago, but I believe that most of these general trends have not changed much since then.

HT Dr. Snowden for sharing these graphs to motivate discussion of business cycle theory.

College Football Predictions

The Harvard College Sports Analysis Collective (HSAC) released predictions on Sunday for what they thought the AP Poll would look like when released on Monday morning. And their prediction model did fairly well:

Our predictions did well, accurately predicting the exact ranking of 11 teams. That is not counting minor mis-orderings, like the Wisconsin-Kansas State-Oklahoma triad. We struggled a bit at the bottom of the poll, as we suspected.

Finally, the correlation between the predicted points for each team and the actual points was an amazing 0.985.

These are pretty impressive results given that the AP Poll is based on somewhat subjective human voting behavior. Since this is just one random week taken from the "population," I would be even more interested to see how well HSAC's predictions hold up over an entire season. I've commented on their post with this question, and am currently waiting for a response.

My intuition is that their predictions would be less accurate the first half of the season as the best teams start to have not yet proven themselves in voters' minds (voters being sportswriters and coaches). Toward the end of the season, I would guess that these predictions would have greater precision as teams have largely sorted themselves by that point and voters have more data (wins, loses, points per game, opponent points per game, etc.) to base their rankings on. This is simply a hypothesis, but worth looking into.

HT John M. for sharing this post

MIT Sloan Sports Analytics Conference

Source: http://www.sloansportsconference.com

I just bought my ticket to the MIT Sloan Sports Analytics Conference in Boston on March 2-3. Student tickets are $150 right now for a limited time period, and then they will go up to $175 after that. Non-student tickets will put you back $350 right now. If you can't make it, they also have some great content online from past years.

Once again, they have an all-star lineup of guest speakers including Bill Simmons (The Sports Guy), Eric Mangini, Jeff Van Gundy, Mark Cuban, Michael Wilbon, and many others.

My goals for the conference include learning more about sports analytics, finding out what career opportunities exist for economists who want to work in sports, and networking with people in the business and with other students like myself. I also hope to make some time to return to my stomping grounds at Boston University. If there is enough time after all of that, I'll squeeze in a blog post or two with updates and reflections.

This year should be especially interesting with the NBA season currently at risk and lots of discussion of the NCAA.

Update: There is a tentative NCAA panel that the SSAC is working on putting together.

Second Update: The Father of "Sabermetrics," Bill James, will be speaking.

The State of India's Educational Attainment

The excerpts below are from a paper by economists Barry Bosworth and Susan Collins when they were both research fellows at the Brookings Institution a few years ago (Bosworth is still there).

[...] 98 percent of China’s primary school enrollees reach the fifth grade, compared to 60 percent for India. Despite an external reputation for having a large pool of highly educated persons, India faces serious deficiencies in the education of the bulk of its youth population (p. 63).

Before reading this article, my perceptions of India matched the "external reputation" described above. However, the data do not lie. The following table from the paper (p.52) compares India to their "peer group."

India clearly started the race a few strides back in 1960, and they still have a lot of ground to make up moving forward. While average years of schooling increased, and the share of their population without schooling decreased significantly, India still had almost 3 times as much of their population with no schooling relative to China. The authors also cite a literacy rate of just 76% among youth aged 15-24 in India compared to a 99% literacy rate for China (p.52).

Taking the state of India's education as given, the authors suggest the following.

Ultimately, India will need to redress its inadequate infrastructure and to broaden its trade beyond the current emphasis on services. Only an expansion of goods production and trade can provide employment opportunities for its current pool of underemployed and undereducated workers (p. 64).

The moral of the story? India needs to utilize it's workforce better in the short to medium run given where they currently stand. They can do this by ramping up industrial production and trade, a traditional source of growth for developing nations.

Over the long run, education is key. In the race to educate, India still has some catching up to do. If they can accelerate the rate of progress they have made in education over the last 40 years, then economic growth will be sustainable for years to come.

Koomey's Law vs. Moore's Law

For some time I've been fascinated by laws that scientists, economists, and other social scientists come up with that accurately describe relationships that occur in the world around us. Moore's law is one of those laws that has had exciting implications in the field of technology. Most people have heard of Moore's Law, but in case you haven't, here's what Investopedia has to say about it:

An observation made by Intel co-founder Gordon Moore in 1965. He noticed that the number of transistors per square inch on integrated circuits had doubled every year since their invention. Moore’s law predicts that this trend will continue into the foreseeable future.

Although the pace has slowed, the number of transistors per square inch has since doubled approximately every 18 months. This is used as the current definition of Moore's law.

While Moore's law has been amazingly accurate in describing the doubling of computing power over time (and has even become part of the planning process for technology companies), it may start fading away as physical limitations start to come into play. Opinions are mixed.

A new finding by Stanford professor Jonathan Koomey could become the new Moore's Law. The gist of the Koomey's law is that the energy efficiency of computers doubles every 1.5 years. This is an important finding! The chart below illustrates how historically strong the relationship is.

Source: The Economist Daily Chart

Ceteris paribus, Koomey's law means that  that our laptops and devices will keep getting lighter and lighter as battery sizes will shrink... but will all else be equal? Probably not. Programs and data types are constantly requiring greater amounts of computing power, and thus more energy. Thus, batteries will likely shrink, but at a much slower rate than predicted by Koomey's law because of the demand for increases in computing power. Still exciting stuff though!

*Note, I'm aware that Koomey's finding is not officially a law yet. But, it's much easier to call it Koomey's law than Koomey's finding. When does a finding actually become a "law" anyway?

**Eric Brynjolfsson, an MIT professor who blogs over at Economics of Information has a similar post on the topic.

1800's Harvard Exam

This old-school Harvard exam from the 1800s would have rocked my socks. Lot's of Latin and computational math problems. At first glance, I thought the word "rod" was a typo (arithmetic, question 6). Then I looked it up. Apparently, 1 square rod = 30.25 square yards. I guess they stopped teaching that measurement in school.

Click the picture to access the exam

HT Mitchell for sharing this.

Denmark's "Fat Tax" and Unintended Consequences

Denmark's "fat tax" went into effect on Saturday. Denmark is apparently the only country with such a tax. Via The LA Times.

The tax rate is 16 Danish kroner per kilogram of saturated fat in a food – in terms Americans can understand, that’s about $6.27 per pound of saturated fat – and it kicks in when the saturated fat content of a food item exceeds 2.3%.

[...] the tax adds 12 cents to a bag of chips, 39 cents to a small package of butter and 40 cents to the price of a hamburger.

Here is why the tax has been enacted.

[...] Denmark lags in terms of life expectancy, and the country hopes the measure will increase the average lifespan by three years over the next decade.

 A respectable goal. Will the tax work? Via BBC News:

Some consumers began hoarding to beat the price rise, while some producers call the tax a bureaucratic nightmare. Others suggest that many Danes will simply start shopping abroad.

These possibilities make clear the unintended consequences of  policy. Will the "fat tax" impact public health and increase lifespans, or will it simply alter when and where consumers buy their fatty goods. Local entrepreneurs could capitalize on a this newly created opportunity to providing fatty goods at a slightly lower cost on the black market. German "fat shops" could pop up right across the border, selling candy, dairy, and snack foods at lower prices than what a Danish consumer could get in Denmark. There are also other reasonable scenarios where Danes could get around the tax. Consumers could shift their consumption to other unhealthy foods that have low fat, but high refined sugar and sodium content. Producers could innovate around the tax by manipulating fat contents by included other potentially harmful ingredients.

In addition to the potential unintended consequences, there will be significant costs associated with enforcement, data collection, processing, etc. The tax is relatively complicated which means even higher costs to the system. Via the Washington Post:

Linnet Juul says the tax mechanism is very complex, involving tax rates on the percentage of fat used in making a product rather than the percentage that is in the end-product.

As such, only the arrangements of how companies should handle the tax payments could cost Danish businesses about $28 million in the first year, he said.

This number is obviously just an estimate, but the fat tax is going to be difficult to implement successfully and could cost businesses a substantial amount of money in terms of revenue and administrative costs (not to mention the cost to the government... although admittedly they could make a killing).

Regardless of the associated costs of the fat tax, Danish lawmakers believe this is essential, and they passed the law with relative ease. The big question is will the fat tax do what it is designed to do, increase the average Danish lifespan and help the Danes catch up with the OECD average? This has yet to be seen, but I am doubtful.

Here is the NPR story where I originally heard about the Danish fat tax.